Tagged: Home Loan

MUMBAI: Well-heeled borrowers are parking larger amounts in their home loan overdraft account after running out of options for generating high returns. This has prompted lenders to hold back on offering this product to new customers.

The home loan overdraft facility allows the borrower to use the advance as a savings account and transfer surplus funds there. The advantage is that no interest is charged on the home loan to the extent of the extra money kept in the account.

But lenders are unhappy with more money being parked there as they lose out on interest income, while having to make all provisions required for outstanding loans. Traditionally, middle-class borrowers would use any additional funds to prepay loans, while savvy investors would avail of an overdraft facility and park surplus funds there. Kept temporarily, this surplus would be used for another investment.

Now, with both financial markets and real estate in a sluggish state, the idle funds in these overdraft accounts are rising. “If a substantial part of the loan amount is parked in the overdraft account, the bank loses money as there is no interest income but all attendant costs — commission to agents and provision costs — are there,” said a senior official with State Bank of India (SBI).

While banks are not withdrawing the product, they are putting additional conditions to apply for it. Some banks are refusing to take over loans where the customer has parked more than half the loan amount in the account. Others are not offering the loan for smaller amounts. Yet another multinational bank is charging an annual fee on the unused balance.

Sukanya Kumar, founder of RetaiLending.com, which acts as a direct selling agent for many lenders, said, “This is a strange situation where the banks have a product but they do not want to offer it to a customer. Even if they insist on a higher loan amount today, what will they do if customers park more funds in their account?”

Even otherwise, the overdraft version has traditionally never been pushed the way home loans are sold. It was initially offered by multinational banks to their wealthy borrowers to differentiate themselves from other lenders. This was soon picked up by private banks ICICI Bank and Axis Bank, and even state-owned SBI. Most of the multinational banks — including Citi, HSBC and DBS — are offering this to customers. Banks that have shifted focus to retail like IDBI Bank and IDFC Bank are also providing this product. But even as the number of banks has increased, lenders are becoming choosy.

IDBI Bank has already increased its one-year MCLR rate to 8,65 percent, making its loans more expensive for customers. The bank has also increased its two-year and three-year MCLR rate to 8.7 percent and 8.8 percent, respectively
By ZeeBiz WebTeam | Updated: Mon, May 14, 2018 06:12 pm | ZeeBiz WebDesk

If you are thinking of taking a home loan then you must do it as early as possible, as banks are likely to increase their interest rates in near future. IDBI Bank has already increased its one-year MCLR rate to 8,65 percent, making its loans more expensive for customers. The bank has also increased its two-year and three-year MCLR rate to 8.7 percent and 8.8 percent, respectively. This rate has been made effective from May 12. The bank has increased MCLR in the range between 0.5 bps and 0.10 bps.

This is the base rate at which banks provide loans to its customers. If banks get cheaper loans then they also lend at cheaper rates to their customers and vis-a-vis. An increase in the MCLR means, your loans will come at a higher rate, and you will have to shell out more for auto loans, home loans, personal loans or any other loans.

The country’s largest lender State Bank of India (SBI) recently increased its home loan rate for up to Rs 30 lakh from 8.35 percent to 8.65 percent. Allahabad Bank is also providing the home loan amount up to 30 lakh at 8.35 percent.

Other banks including Axis Bank and Bank of India are giving home loans up to Rs 30 lakhs at 8.4 percent, according to Bank Bazaar. For home loans between Rs 30 lakh and 75 lakh, Allahabad Bank, Dena Bank and SBI are charging 8.35 percent. These banks are also charging the same rate for loans over Rs 75 lakhs, according to the financial services company website.

ICICI Bank, however, is charging between 8.75 and 8.95 per cent for loans over Rs 75 lakh, while HDFC Bank is providing loans at 8.6 percent for the amount exceeding Rs 75 lakh. As the banks are increasing their loan rates, this is the right time to go for home loan.

BENGALURU : Are banks gearing up to reward you for good behaviour? After Bank of India (BoI) and Bank of Baroda (BoB) announced such measures, IDBI Bank on Tuesday said that it will reward good borrowers by giving them differential pricing on their home loan interest rates based on their Cibil scores.

According to Cibil COO Harshala Chandorkar, this could point to a larger trend of “loan interests more aligned towards a carrot-and-stick policy – where good borrowers can reap the benefits of their financial prudence and bad borrowers get weeded out or have to pay steeper rates”.

With all four credit bureaus in India – Cibil, Equifax, Experian and CRIF Highmark – looking at wider coverage and criteria, from whether you paid your electricity bill on time to whether your parents paid off for the bike they got you in college, this score could affect your loan prospects.

In the last few years, with non-banking financial companies (NBFCs) and micro-finance institutions also sending information on borrowers to credit bureaus, lenders now have a wider and more comprehensive data set to assess. This could further widen as Cibil is currently in talks with telecom regulator Trai for access to data on prepaid recharges, and other agencies for utility bill payment history.

Banking analyst Hemindra Hazari said, “The whole point of Cibil assessing a customer’s data is that at some point it should translate into benefits. Corporates are always being graded on their term loans, unsecured debt and convertibles, AAA or BB++ rating, and that gives a better picture of their credit worthiness.”

In IDBI Bank’s case, it will be offering loans at 5-15bps (1 percentage point = 100 basis points, or bps) cheaper for customers whose Cibil score is above 700. A credit score normally ranges between 300 and 900 – based on credit behaviour and repayment history. Therefore, the higher the score, the more the chances of securing a fresh loan. IDBI Bank ED Jorty Chacko said, “We are keen to provide all aspiring consumers with access to credit. But while doing so, it is important to reward those consumers who have exhibited consistent credit discipline through timely payments and responsible credit management.”

But with many customers unaware of the role credit bureaus play and whether decisions taken earlier in life can come back to haunt one, Hazari said, “I am concerned about the privacy of our data. In India, there is a very low premium on methods employed for data collection and aggregation. And also, many a time, your consent is not required before financial institutions share additional sets of information over and above what is mandated.”

Lenders prefer to offer home loans to individuals who have a credit score in excess of 750.
Nikhil Walavalkar | May 16, 2018 09:46 PM IST | Source: Moneycontrol.com

Issuance of a credit card marks the entry into the world of credit for most millennials. The journey that starts with a credit card generally peaks when one opts for a home loan, thanks to sky-high home prices. Obtaining a home loan at an attractive rate is a task for many. But they forget that if one uses a credit card prudently, it can help strike a better home loan deal. Here is how it works.

Lenders prefer to offer home loans to individuals that have a credit score in excess of 750. This score is not built overnight. If a borrower has been repaying the loan on time, it can help build a credit score over a period of time. Here is how your credit card usage aids in building a credit score and obtain a home loan at an attractive rate of interest.

Timely repayment of outstanding
Credit cards allow you to access funds without interest for a stipulated period of time, if you pay the entire bill before the due date. “Failure to pay the bill in full attracts interest but also harms your credit score,” Satyam Kumar, co-founder and CEO of LoanTap Financial Technologies, said.

He advises paying all credit card dues in full before the due date to ensure that the credit score goes up. If possible use standing instructions on your saving bank account, so that the lender debits the bill from your account. If you pay the minimum amount due, even though the banker is not treating it as a default, credit score companies do not take it positively.

If you miss your bill payment once in a while by a couple of days, it may not kill your credit score. But avoid repeating such instances a few months before applying for a home loan.

Credit utilisation ratio
“Keep your credit utilisation ratio low at around 30 percent,” Kumar stated. For beginners, it stands for how much credit one uses out of the allotted limit. It is calculated for each card separately as well as jointly for all cards. For example, if you have two credit cards – A and B – with a credit limit of Rs 1 lakh each. and spend Rs 60,000 and Rs 2,000 on these cards, respectively. Then the credit utilisation ratio for Card A and B stands at 60 percent and two percent, respectively. Jointly it stands at 31 percent. Had the user spread this expenses equally on both cards he would have been closer to the 30 percent mark.

Once in a while this number may go up. But consistently high numbers shows a credit hungry behaviour. If you are using a credit card with low limits, it makes sense to ask your banker to increase the credit limit on the credit card. This will ensure that your credit utilisation ratio falls, if you keep spending a similar amount.

Longevity of your credit card accounts
Credit score gives more weightage to older credit accounts. Longer the repayment history, better is the credit score. Avoid closing your old credit card accounts. Keep using the old credit card and repaying it before the due date helps the credit score.

Personal loans on credit cards
Many prefer to avail personal loans on their credit card to avoid paying a high rate of interest. This move blocks their credit card limit. The borrower is also expected to repay the loan on time. Late payments or defaults on these loans also pull down one’s credit score.

“Be diligent while repaying these personal loans as they are high-cost credit compared to other secured loan options. Also, failure to repay leads to a fall in credit score,” Vishal Dhawan, Founder and Chief Financial Planner at Plan Ahead Wealth Managers, said.

Disputes
If there is a dispute with the lender pertaining to a transaction or charge on the credit card, do not ignore it. “Sometimes individuals tear the credit card as they are unhappy with the service. However, it does not help. One has to ensure there is no outstanding and formally close it,” Dhawan added.

Opting for a one-time settlement or not paying it up will lead to adverse remarks in your credit report. “If you spot a disputed transaction or a charge on your credit card, it makes sense to speak with the card issuer and follow up for an amicable resolution,” Kumar said.

If you use your credit card prudently, there is a high possibility that your credit score will remain good and you will be offered a better deal.

Bank of India will offer preferential pricing rates to borrowers with good credit scores for home loans of Rs 30 lakh and above, the state-run lender said. Customers with CIBIL score of 760 and above will be offered loan at the minimum home loan interest rate or the marginal cost of lending rate (MCLR) for an year, the bank said in a statement. MCLR is the minimum interest rate of a bank below which it cannot lend. Those with a score of 759 and less, the rate of interest for loans of Rs 30 lakh and above will come at MCLR plus 0.10 basis points for a year.

One basis points is 100th of a percentage point. Bank of India said borrowers availing home loans of over Rs 30 lakh will be benefited from the reduced rate of interest. A consumer’s CIBIL score is a three-digit numeric summary of the credit information report (CIR) — summarising the past credit behaviour and repayment history — and ranges from 300 to 900.

The higher the score, the better are the chances of loan approval. Most banks check a consumer’s CIBIL score and report before approving a loan. “Consumers with a good credit discipline should be rewarded, as it helps propagate the importance and need to maintain a good financial history. Our preferential pricing model aims to reward high-scoring home-loan aspirants with competitive ROI, thereby helping them making their dream home a reality,” Bank of India said in a statement.

Credit information company TransUnion CIBIL’s Head of Direct to Consumers Interactive Hrushikesh Mehta said: “Bank of India’s CIBIL score-based incentive helps further highlight the need to monitor and build a positive credit profile through good credit habits.”

Buying that dream home can be rather tedious process that involves a lot of research and running around.

First of all you will have to visit several builders across various locations around the city to zero in on a house you want to buy. After that comes the time to finance the purchase of your house, for which you will most probably borrow a portion of the total cost from a lender like a bank or a home finance company.

However, scouting for a home loan is generally not a well thought-out process and most of us will typically consider the home loan interest rate, processing fees, and the documentary trail that will get us the required financing with minimum effort. There is one more important factor you should consider while taking a home loan and that is the type of loan. There are different options that come with various repayment options.

Other than the plain vanilla home loan scheme, here are a few other repayment options you can consider.

I. Home loan with delayed start of EMI payments
Banks like the State Bank of India (SBI) offer this option to its home loan borrowers where the payment of equated monthly instalments (EMIs) begins at a later date. SBI’s Flexipay home loan comes with an option to go for a moratorium period (time during the loan term when the borrower is not required to make any repayment) of anywhere between 36 months and 60 months during which the borrower need not pay any EMI but only the pre-EMI interest is to be paid. Once the moratorium period ends, the EMI begins and will be increased during the subsequent years at a pre- agreed rate.

Compared to a normal home loan, in this loan one can also get a higher loan amount of up to 20 percent. This kind of loan is available only to salaried and working professionals aged between 21 years and 45 years.

Watch outs: Although initially the burden is lower, servicing an increasing EMI in the later years, especially during middle age or nearing retirement, requires a highly secure job along with decent annual increments. Therefore, you should carefully opt for such a repayment option only if there’s a need as the major portion of the EMI in the initial years represents the interest.

II. Home loan by linking idle savings in bank account
Few home loan offers such as SBI Maxgain, ICICI Bank’s home loan ‘Overdraft Facility’ and IDBI Bank’s ‘Home Loan Interest Saver’ allows you to link your home loan account with your current account that is opened along with. The interest liability of your home loan comes down to the extent of surplus funds parked in the current account. You will be allowed to withdraw or deposit funds from the current account as and when required. The interest rate on the home loan will be calculated on the outstanding balance of loan minus balance in the current account.

For example, on a Rs 50 lakh loan at 8.5 percent interest rate for 20 years, with a monthly take home income of say Rs 1.5 lakh, the total interest outgo for a plain vanilla loan is about Rs 54,13,875. Whereas, for a loan linked to your bank account, it will be about Rs 52,61,242, translating into a savings of about Rs 1.53 lakh during the tenure of the loan.

Watch outs: Although the interest burden gets reduced considerably, banks will ask you to pay that extra interest rate for such loans, which translates into higher EMIs.

III. Home loan with increasing EMIs
If one is looking for a home loan in which the EMI keeps increasing after the initial few years, then you can consider something like the Housing Development Finance Corporation’s (HDFC) Step Up Repayment Facility (SURF) or ICICI Bank’s Step Up Home Loans.

In such loans, you can avail a higher loan amount and pay lower EMIs in the initial years. Subsequently, the repayment is accelerated proportionately with the assumed increase in your income. There is no moratorium period in this loan and the actual EMI begins from the first day. Paying increasing EMI helps in reducing the interest burden as the loan gets closed earlier.

Watch outs: The repayment schedule is linked to the expected growth in one’s income. If the salary increase falters in the years ahead, the repayment may become difficult.

IV. Home loan with decreasing EMIs
HDFC’s Flexible Loan Installments Plan (FLIP) is one such plan in which the loan is structured in a way that the EMI is higher during the initial years and subsequently decreases in the later years.

Watch outs: Interest portion in EMI is as it is higher in the initial years. Higher EMI means more interest outgo in the initial years. Have a prepayment plan ready to clear the loan as early as possible once the EMI starts decreasing.

V. Home loan with lump sum payment in under-construction property
If you purchase an under construction property, you are generally required to service only the interest on the loan amount drawn till the final disbursement and pay the EMIs thereafter. In case you wish to start principal repayment immediately, you can opt to start paying EMIs on the cumulative amounts disbursed. The amount paid will be first adjusted for interest and the balance will go towards principal repayment. HDFC’s Tranche Based EMI plan is one such offering.

For example, on a Rs 50 lakh loan, if the EMI is xx, by starting to pay the EMI, the total outstanding will stand reduced to about Rs 36 lakh by the time the property gets completed after 36 months. The new EMI will be lower than what you had paid over previous 36 months.

Watch outs: There is no tax benefit on principal paid during the construction period. However, interest paid gets the tax benefit post occupancy of the home.

VI. Home loan with longer repayment tenure
ICICI Bank’s home loan product called ‘Extraa Home Loans’ allows borrowers to enhance their loan eligibility amount up to 20 per cent and also provide an option to extend the repayment period up to 67 years of age (as against normal retirement age) and are for loans up to Rs 75 lakh.

These are the three variants of ‘Extraa’.

a) For middle aged, salaried customers: This variant is suitable for salaried borrowers up to 48 years of age. While in a regular home loan, the borrowers will get a repayment schedule till their age of retirement, with this facility they can extend their loan tenure till 65 years of age.

b) For young, salaried customers:The salaried borrowers up to 37 years of age are eligible to avail a 30 year home loan with repayment tenure till 67 years of age.

c) Self-employed or freelancers :There are many self-employed customers who earn higher income in some months of the year, given the seasonality of the business they are in. This variant will take the borrower’s higher seasonal income into account while sanctioning those loans.

Watch outs: The enhancement of loan limit and the extension of age come at a cost. The bank will charge a fee of 1-2 per cent of total loan amount as the loan guarantee is provided by India Mortgage Guarantee Corporation (IMGC). The risk of enhanced limit and of increasing the tenure essentially is taken over by IMGC.

VII. Home loan with waiver of EMI
Axis Bank offers a repayment option called ‘Fast Forward Home Loans’ where 12 EMIs can be waived off if all other instalments have been paid regularly. Here. six months EMIs are waived on completion of 10 years, and another 6 months on completion of 15 years from the first disbursement. The interest rate is the same as that for a normal loan but the loan tenure has to be 20 years in this scheme. The minimum loan amount is fixed at Rs 30 lakh.

The bank also offers ‘Shubh Aarambh Home Loan’ with a maximum loan amount of Rs 30 lakh, in which 12 EMIs are waived off at no extra cost on regular payment of EMIs – 4 EMIs waived off at the end of the 4th, 8th and 12th year. The interest rate is the same as normal loan but the loan tenure has to be 20 years in this loan scheme.

Watch outs: Keep a tab on any specific conditions and the processing fee and see if it’s in line with other lenders. Keep a prepayment plan ready and try to finish the loan as early as possible.

Nature of home loans
Effective from April 1, 2016, all loans including home loans are linked to a bank’s marginal cost-based lending rate (MCLR). Someone looking to get a home loan should keep in mind that MCLR is only one part of the story. As a home loan borrower, there are three other important factors you need to evaluate when choosing a bank to take the loan from – interest rate on the loan, the markup, and the reset period.

What you should do
It’s better to opt for a plain-vanilla home loan as they don’t come with any strings attached. However, if you are facing a specific financial situation that may require a different approach, then you could consider any of the above variants. Sit with your banker, discuss your financial position, make a reasonable forecast of income over the next few years and decide on the loan type. Don’t forget to look at the total interest burden over the loan tenure. Whichever loan you finally decide on, make sure you have a plan to repay the entire outstanding amount as early as possible. After all, a home with 100 per cent of your own equity is a place you can call your own.

Banks and NBFCs follow different guidelines when it comes to lending and, thus, home loans disbursed by them are also done on certain different parameters. Here’s all you need to know.
By: Adhil Shetty | Published: May 3, 2018 1:03 PM | Financial Express

When buying a house, we all want to get the best deal on the home loan we avail as it is probably the longest financial commitment we will make impacting our overall portfolio and expenses. However, deciding on the right financial institution to avail the loan from is a rather tricky task, given the market is competitive.

With the rise of non-banking financial corporations (NBFCs) in India, the choice has only gotten wider as customers can now choose not only among banks, but also NBFCs. But did you know that availing a home loan from a bank and an NBFC may seem similar, but work in very different ways?

Banks and NBFCs follow different guidelines when it comes to lending and, thus, home loans disbursed by them are also done on certain different parameters. Find out how these two differ when it comes to assessing an individual for a home loan and which one can you resort to for your home loan.

1. Interest Rates: MCLR vs PLR

Banks operate their housing loan interest rates based on Marginal Cost of Lending Rate (MCLR), which serves as their lending benchmark and is closely monitored by the RBI. On the other hand, loans by Housing Finance Companies (HFCs) and NBFCs are not linked to the MCLR. They are linked to the Prime Lending Rate (PLR), which is outside the ambit of the RBI. So while banks can’t lend at rates below the MCLR, PLR-linked loans do not have such restrictions.

Banks have both floating and fixed rates, of which before only floating rates felt the occasional impact of MCLR. But in February this year it was announced by the RBI that all new loans whether with floating interest rates or base rates will be linked to the MCLR.

An MCLR-linked loan clearly mentions the intervals at which its interest rate will automatically change. In a falling interest rate scenario, this allows customers to receive RBI-mandated rate cuts in a transparent, time-bound manner.

As NBFCs and HFCs are free to set their PLR, it gives them greater freedom to increase or decrease their loan rates as per their selling requirements. This sometimes suits customers and provides them more options, especially when they fail to meet the loan eligibility criteria of banks. But in many cases, for those who easily meet the criteria this may also result in inflated interest rates compared to banks.

2. Loan Eligibility via Credit Score

As paperless financial technology takes prominence, more and more lenders are depending on credit scores to determine loan eligibility. While there are upper caps set on interest rates through MCLR and PLR, the actual interest rate you pay on your loan is linked to your credit score. Leading lenders are known to offer their best rates to customers with a CIBIL score of 750 or more.

While both banks and NBFCs consider credit scores carefully, NBFCs tend to have more relaxed policies towards customers with low credit scores. However, with a very low score, both banks and NBFCs will likely charge you a higher interest rate. In some cases, banks may ask to convert the home loan into a secured loan by mortgaging some asset if the credit criteria is not met, but you still need the loan.

A customer with a low score can in fact start with a loan from an NBFC. Through timely repayment, s/he can improve his credit score. After this, once the bank’s eligibility criteria is met, the loan balance can be transferred to a bank.

To keep yourself ready, make sure to access credit reports by CIBIL or Experian. This will allow you to be ready even before you approach a lender. Since credit scores change every quarter, you can take your time to improve it before you decide to avail the loan in order to get a better rate of interest and disbursal amount.

3. Loan Amount

The actual cost of property is never just the selling price promoted by developers and builders. During acquisition it typically goes up as other costs like stamp duty, registration, an assortment of payments towards brokerage, furnishing, repairs and more always add up. Based on where you are in India, you may have to pay between 3 and 11 per cent of the property value as registration cost alone.

Banks are allowed to fund up to 80% of a property’s value. For example, if you are buying a property worth Rs 50 lakh, you may receive a loan of Rs 40 lakh from banks excluding the registration cost and associated charges of course. The rest of the fund requirements would have to be met by you and often these last mile costs weigh heavily on the final decision to buy a property.

Although both NBFCs and banks are not allowed to fund stamp duty and registration costs, NBFCs can include these costs as part of a property’s market valuation. This allows the customer to borrow a larger amount as per his eligibility.

4. Pre-Payment, Foreclosure and Late Payment Charges

Just like other loans, home loans also have associated charges attached. Both banks and NBFCs will have charges for pre-payment and foreclosure but NBFCs tend to charge much higher. In addition, late payment charges by NBFCs may sometimes be close to 10 or 20% of your monthly EMI, giving you no respite in case you default on any payment. NBFCs also tend to have higher processing fees, although some banks may charge similar amounts.

Whoever the lender may be, make sure to calculate you future interests and factor in additional costs associated with your repayment as home loans range between 10 and 30 years and you may have to bear such high charges in future.